SEBI mulls altering takeover code

THE Securities and Exchange Board of India is considering changing the takeover code.

According to the draft amendments to the regulation, creeping acquisition of over 55 per cent in a company cannot be made through open offers, market purchases or preferential allotments.

If a promoter has acquired shares or voting rights through market purchases or preferential allotments, beyond 55 per cent, he should disinvest the shares acquired in excess of this limit, suggest the draft amendments.

Currently, the regulation allows creeping acquisition up to 75 per cent.

Also up to 100 per cent of the stake can be acquired through an open offer and preferential allotment is capped at 5 per cent per year.

Public announcement is necessary for acquiring any stake over 55 per cent, suggests the draft.

An acquirer who has acquired 55 per cent or more but less than 75 per cent of the shares or voting rights in a target company, may acquire any additional share or voting right, only if he makes a public announcement to acquire shares or voting rights, the draft amendments say.

Also under Regulation 10 dealing with the acquisition of 15 per cent or more of the shares or voting rights of the company, a provision has been inserted which says that acquisition of over 55 per cent stake must go through the reverse book building route.

Effectively, this will also do away with the route of open offer for acquiring up to 100 per cent stake in the target company.

Where any public offer is made under the regulation dealing with consolidation of holdings, the offer should be for such percentage of voting capital of the target company so that the acquisition does not result in the public shareholding in the target company being reduced to a level below what is specified in the Listing Agreement of the company.

If, after the public offer, the public shareholding falls to a level below the limit specified in the Listing Agreement of the company with the stock exchanges, the acquirer should raise the level of public shareholdings within a period of 12 months by issue of new shares or disinvestments through an offer for sale.

The acquirer can also sell his holdings through the stock exchange, suggests the draft.

The draft also seeks to expand the definition of `promoter' to include any person acting in concert with the promoter in any disclosure made in terms of the Listing Agreement.

(This article was published in the Business Line print edition dated January 21, 2005)

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